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The Effects of Employment Protection on the Italian Labour Market

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Abstract

This paper uses the Italian Social Security employer-employee panel to study the effect of a reform that introduced a cost for unjust dismissals only for firms below 15 employees, while leaving firing costs unchanged for bigger firms. We find that the increase in dismissal costs decreased accessions and separations in small relative to big firms, the more so in sectors with higher employment volatility. Moreover, the reform reduced firms’ entry rates while increasing the exit rate. We also find evidence that higher EPL flattened employment policies over the cycle

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  • Adriana Kugler adkugler@uh.edu & Giovanni Pica, 2005. "The Effects of Employment Protection on the Italian Labour Market," CSEF Working Papers 135, Centre for Studies in Economics and Finance (CSEF), University of Naples, Italy.
    • Handle: RePEc:sef:csefwp:135
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    1. Bertola, Giuseppe, 1990. "Job security, employment and wages," European Economic Review, Elsevier, vol. 34(4), pages 851-879, June.
    2. Adriana Kugler & Juan F. Jimeno & Virginia Hernanz, "undated". "Employment Consequences of Restrictive Permanent Contracts: Evidence from Spanish Labor Market Reforms," Working Papers 2003-14, FEDEA.
    3. Bertola, Giuseppe & Rogerson, Richard, 1997. "Institutions and labor reallocation," European Economic Review, Elsevier, vol. 41(6), pages 1147-1171, June.
    4. Adriana D. Kugler & Giovanni Pica, 2006. "The Effects of Employment Protection and Product Market Regulations on the Italian Labour Market," Chapters, in: Julián Messina & Claudio Michelacci & Jarkko Turunen & Gylfi Zoega (ed.), Labour Market Adjustments in Europe, chapter 4, Edward Elgar Publishing.
    5. Giuseppe Nicoletti & Stefano Scarpetta & Olivier Boylaud, 2000. "Summary Indicators of Product Market Regulation with an Extension to Employment Protection Legislation," OECD Economics Department Working Papers 226, OECD Publishing.
    6. Boeri, Tito & Jimeno, Juan F., 2005. "The effects of employment protection: Learning from variable enforcement," European Economic Review, Elsevier, vol. 49(8), pages 2057-2077, November.
    7. Ichino, Andrea & Riphahn, Regina T., 2001. "The Effect of Employment Protection on Worker Effort: A Comparison of Absenteeism During and After Probation," IZA Discussion Papers 385, Institute of Labor Economics (IZA).
    8. Daron Acemoglu & Joshua D. Angrist, 2001. "Consequences of Employment Protection? The Case of the Americans with Disabilities Act," Journal of Political Economy, University of Chicago Press, vol. 109(5), pages 915-957, October.
    9. Pagés, Carmen & Micco, Alejandro, 2004. "Employment Protection and Gross Job Flows: A Differences-in-Differences Approach," IDB Publications (Working Papers) 1106, Inter-American Development Bank.
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    12. Jennifer Hunt, 2000. "Firing Costs, Employment Fluctuations and Average Employment: An Examination of Germany," Economica, London School of Economics and Political Science, vol. 67(266), pages 177-202, May.
    13. Joshua D. Angrist & Adriana D. Kugler, 2003. "Protective or counter-productive? labour market institutions and the effect of immigration on eu natives," Economic Journal, Royal Economic Society, vol. 113(488), pages 302-331, June.
    14. Adriana Kugler, 1999. "The Impact of Firing Costs on Turnover and Unemployment: Evidence from the Colombian Labour Market Reform," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 6(3), pages 389-410, August.
    15. Edward P. Lazear, 1990. "Job Security Provisions and Employment," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 105(3), pages 699-726.
    16. Pietro Garibaldi & Lia Pacelli & Andrea Borgarello, 2004. "Employment Protection Legislation and the Size of Firms," Giornale degli Economisti, GDE (Giornale degli Economisti e Annali di Economia), Bocconi University, vol. 63(1), pages 33-68, April.
    17. Hopenhayn, Hugo & Rogerson, Richard, 1993. "Job Turnover and Policy Evaluation: A General Equilibrium Analysis," Journal of Political Economy, University of Chicago Press, vol. 101(5), pages 915-938, October.
    18. Fabiano Schivardi & Roberto Torrini, 2004. "Firm size distribution and employment protection legislation in Italy," Temi di discussione (Economic working papers) 504, Bank of Italy, Economic Research and International Relations Area.
    19. Adriana D. Kugler & Gilles Saint-Paul, 2004. "How Do Firing Costs Affect Worker Flows in a World with Adverse Selection?," Journal of Labor Economics, University of Chicago Press, vol. 22(3), pages 553-584, July.
    20. David H. Autor, 2003. "Outsourcing at Will: The Contribution of Unjust Dismissal Doctrine to the Growth of Employment Outsourcing," Journal of Labor Economics, University of Chicago Press, vol. 21(1), pages 1-42, January.
    21. David H. Autor & John J. Donohue & Stewart J. Schwab, 2006. "The Costs of Wrongful-Discharge Laws," The Review of Economics and Statistics, MIT Press, vol. 88(2), pages 211-231, May.
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    Cited by:

    1. David H. Autor & William R. Kerr & Adriana D. Kugler, 2007. "Do Employment Protections Reduce Productivity? Evidence from U.S. States," NBER Working Papers 12860, National Bureau of Economic Research, Inc.
    2. Carmen Pagés-Serra & Alejandro Micco, 2008. "Efectos económicos de la protección del empleo: Elementos de juicio a partir de datos internacionales a nivel de actividad económica," Research Department Publications 4497, Inter-American Development Bank, Research Department.
    3. Micco, Alejandro & Pagés, Carmen, 2006. "The Economic Effects of Employment Protection: Evidence from International Industry-Level Data," IZA Discussion Papers 2433, Institute of Labor Economics (IZA).
    4. Taehyun Ahn, 2022. "Workweek reduction and women's job turnover: Evidence from labor legislation in South Korea," Economic Inquiry, Western Economic Association International, vol. 60(4), pages 1607-1625, October.
    5. Sá, Filipa, 2011. "Does employment protection help immigrants? Evidence from European labor markets," Labour Economics, Elsevier, vol. 18(5), pages 624-642, October.
    6. Christopher A. Hartwell, 2010. "Employment Protection Legislation and Labor Markets in Transition: Assessing the Effects of the Labor Code in Armenia," European Journal of Comparative Economics, Cattaneo University (LIUC), vol. 7(2), pages 413-445, December.
    7. Schnalzenberger, Mario & Winter-Ebmer, Rudolf, 2009. "Layoff tax and employment of the elderly," Labour Economics, Elsevier, vol. 16(6), pages 618-624, December.
    8. Pedro S. Martins, 2009. "Dismissals for Cause: The Difference That Just Eight Paragraphs Can Make," Journal of Labor Economics, University of Chicago Press, vol. 27(2), pages 257-279, April.
    9. Parsons, Donald O., 2011. "Mandated Severance Pay and Firing Cost Distortions: A Critical Review of the Evidence," IZA Discussion Papers 5776, Institute of Labor Economics (IZA).
    10. Bernhard Boockmann & Daniel Gutknecht & Susanne Steffes, 2008. "Effects of Dismissal Protection Legislation on Individual Employment Stability in Germany," IAW Discussion Papers 45, Institut für Angewandte Wirtschaftsforschung (IAW).
    11. Chiara Mussida & Matteo Picchio, 2014. "The trend over time of the gender wage gap in Italy," Empirical Economics, Springer, vol. 46(3), pages 1081-1110, May.
    12. Kahn, Lawrence M., 2007. "Employment Protection Reforms, Employment and the Incidence of Temporary Jobs in Europe: 1995–2001," IZA Discussion Papers 3241, Institute of Labor Economics (IZA).
    13. Dräger, Vanessa & Marx, Paul, 2012. "Do Firms Demand Temporary Workers When They Face Workload Fluctuation? Cross-Country Firm-Level Evidence on the Conditioning Effect of Employment Protection," IZA Discussion Papers 6894, Institute of Labor Economics (IZA).
    14. Brändle Tobias & Heinbach Wolf Dieter, 2013. "Opening Clauses in Collective Bargaining Agreements: More Flexibility to Save Jobs?," Review of Economics, De Gruyter, vol. 64(2), pages 159-192, August.
    15. repec:ilo:ilowps:433276 is not listed on IDEAS
    16. Michela Bia & Pierre-Jean Messe & Roberto Leombruni, 2010. "Young-in Old-out: a new evaluation," TEPP Working Paper 2010-14, TEPP.
    17. Djankov, Simeon & Ramalho, Rita, 2009. "Employment laws in developing countries," Journal of Comparative Economics, Elsevier, vol. 37(1), pages 3-13, March.
    18. Ioannis Koliousis, 2016. "Assessing the Impact of the Latest Deregulatory Developments in the EU28 Transport Industry Production: a Critical Review Based on Empirical Data," SPOUDAI Journal of Economics and Business, SPOUDAI Journal of Economics and Business, University of Piraeus, vol. 66(1-2), pages 3-21, January-J.
    19. von Below, David & Thoursie, Peter Skogman, 2010. "Last in, first out?: Estimating the effect of seniority rules in Sweden," Labour Economics, Elsevier, vol. 17(6), pages 987-997, December.
    20. Chacaltana Janampa, Juan., 2009. "Economic implications of labour and labour-related laws on MSEs : a quick review of the Latin American experience," ILO Working Papers 994332763402676, International Labour Organization.
    21. Fox, Louise & Oviedo, Ana Maria, 2008. "Institutions and labor market outcomes in Sub-Saharan Africa," Policy Research Working Paper Series 4721, The World Bank.

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    More about this item

    Keywords

    Costs of Unjust Dismissals; European Unemployment; Firms’ Entry and Exit; Employment Volatility;
    All these keywords.

    JEL classification:

    • E24 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Employment; Unemployment; Wages; Intergenerational Income Distribution; Aggregate Human Capital; Aggregate Labor Productivity
    • J63 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Turnover; Vacancies; Layoffs
    • J65 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Unemployment Insurance; Severance Pay; Plant Closings

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